PORTFOLIO MANAGEMENT – QUOTES FROM INVESTMENT GREATS

PORTFOLIO MANAGEMENT quotes from Seth Klarman and other greats by Investment Master Class
“There is a personality difference between the people who are good at finding stocks and the people who call the shots on timing and manage the whole portfolio. Security analysts dog down information and come up with an idea about what should be bought or sold, but they do not necessarily make good conductors for the whole orchestra. If they are woodwind players to start, they tend to hear the whole orchestra as woodwinds, and it takes another type to keep the woodwinds and brasses and strings in line” Adam Smith, The Money Game

“A fiduciary should think more about the safety of an entire portfolio than about any individual holding” Seth Klarman

“I’ve learned that finding great ideas and portfolio management are very different skills. Both are critical” Kevin Byun

“The challenge of successfully managing an investment portfolio goes beyond making a series of good individual investment decisions” Seth Klarman

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PORTFOLIO MANAGEMENT With permission

“Construction of a financial-asset portfolio involves full measures of science and art” David Swenson

“What happens when you are wrong is everything in investing. You must construct a portfolio to survive those times” Seth Klarman

“What does the idea bring to the whole portfolio? It’s very tempting to be excited about an individual opportunity, but you have to look at things overall, at how this will change the portfolio level. Will it affect profitability. Does it create more volatility? Does it get us closer to the Holy Grail Company where you’ve got top line gross, margin improvement and multiple expansion, and balance sheet optimization policy? When you’ve got a company where you’ve got all these green lights, that’s what you look for.” Pierre Lagrange

“The inability to think about risk the right way may not matter at all for an analyst. We’re not asking for their judgement on risk, we’re asking for analysis and facts, and secondarily, their opinion. It’s the portfolio manager who eventually needs to be able to identify risk, whether it’s an excessive concentration, a failure to diversify, a failure to hedge, or a failure to understand the risk that is sitting right on your shoulders and you don’t realise it. Failure to recognize those things can kill people” Seth Klarman

“Portfolio construction is not a science, more an art and involves lots of judgement” Neil Woodford

“Long/short funds typically don’t blow up because they made a bunch of wrong fundamental stock picks. They blow up because they’re overexposed to correlated sectors, or they own too many leveraged companies, or they have too many illiquid positions. These are “explanations” you see all the time in funds' letters to investors. That’s exactly what we try to avoid.” Curtis Macnguyen

“In almost every case of catastrophic failure that we’ve observed, we believe the root cause can ultimately be boiled down to one or a combination of just five factors. The five factors are 1) leverage 2) excessive concentration 3) excessive correlation 4) illiquidity and 5) capital flight” Zeke Ashton

"When I have nine businesses in a portfolio, and I'm adding a tenth one, I think very carefully about the correlation the tenth one has with the other nine" Mohnish Pabrai

"There's more to managing a pile of money than picking stocks. There's tracking their progress, knowing when they should be sold, getting the right mix of stocks, adding the garlic and lemongrass of foreign issues, and all the rest. It is not a job for amateurs who aren't willing to commit a great deal of time and study to the process" Ralph Wanger

"We tag every stock in our portfolio for more than 40 possible spread-risk factors on which stock prices can diverge dramatically. The factors include common ones like sector exposure, market cap, liquidity, leverage and dividend rates, and maybe less obvious ones like exposure to China or the constitution of the shareholder base. At any given time, for example, we'll know that 16% of our longs and 13% of our shorts are in highly leveraged companies. We'll know our exposure to companies that should perform well in an inflationary environment versus those that won't. With 40 different factors, it's impossible to balance every exposure, but fortunately only a few risk factors matter in any given market those are the ones we try to neutralize. We're just trying to be sensitive to the fact that many other factors can determine stock prices besides fundamental value. Sometimes value investors can get caught up in the intellectual rightness of what they're doing and ignore risks that can hurt them" Curtis Macnguyen

"A portfolio manager must understand that safeguarding against loss does not end with finding the perfect security at the perfect price. If it did, then the perfect portfolio would likely consist of one security. Rather, to the extent possible, I have the responsibility to structure the portfolio such that if any of a number of unforseen events occur, that I do not lose the whole, or even a significant portion, of the client's money. To do this, I seek to minimise the correlation between the intrinsic values of the various securities held in the portfolio." Michael Burry